Building upon backglancer's and stefan's posts below, the following script will lay a 24-bit PNG watermark over any image.

To prepare a 24-bit watermark, I recommend creating a white logo or text over a transparent background in Photoshop.  Save this as a 24-bit PNG via 'Save for the Web...'.  Be sure to set the transparency of the logo layer in Photoshop itself.  30-40% is a good setting.

Once the assets are prepared, throw the full or relative server paths at the watermark function below:

/******************************************************************/

function watermark($sourcefile, $watermarkfile) {
  
    #
    # $sourcefile = Filename of the picture to be watermarked.
    # $watermarkfile = Filename of the 24-bit PNG watermark file.
    #
    
    //Get the resource ids of the pictures
    $watermarkfile_id = imagecreatefrompng($watermarkfile);
    
    imageAlphaBlending($watermarkfile_id, false);
    imageSaveAlpha($watermarkfile_id, true);

    $fileType = strtolower(substr($sourcefile, strlen($sourcefile)-3));

    switch($fileType) {
        case('gif'):
            $sourcefile_id = imagecreatefromgif($sourcefile);
            break;
            
        case('png'):
            $sourcefile_id = imagecreatefrompng($sourcefile);
            break;
            
        default:
            $sourcefile_id = imagecreatefromjpeg($sourcefile);
    }

    //Get the sizes of both pix   
  $sourcefile_width=imageSX($sourcefile_id);
  $sourcefile_height=imageSY($sourcefile_id);
  $watermarkfile_width=imageSX($watermarkfile_id);
  $watermarkfile_height=imageSY($watermarkfile_id);

    $dest_x = ( $sourcefile_width / 2 ) - ( $watermarkfile_width / 2 );
    $dest_y = ( $sourcefile_height / 2 ) - ( $watermarkfile_height / 2 );
    
    // if a gif, we have to upsample it to a truecolor image
    if($fileType == 'gif') {
        // create an empty truecolor container
        $tempimage = imagecreatetruecolor($sourcefile_width,
                                                                            $sourcefile_height);
        
        // copy the 8-bit gif into the truecolor image
        imagecopy($tempimage, $sourcefile_id, 0, 0, 0, 0, 
                            $sourcefile_width, $sourcefile_height);
        
        // copy the source_id int
        $sourcefile_id = $tempimage;
    }

    imagecopy($sourcefile_id, $watermarkfile_id, $dest_x, $dest_y, 0, 0,
                        $watermarkfile_width, $watermarkfile_height);

    //Create a jpeg out of the modified picture
    switch($fileType) {
    
        // remember we don't need gif any more, so we use only png or jpeg.
        // See the upsaple code immediately above to see how we handle gifs
        case('png'):
            header("Content-type: image/png");
            imagepng ($sourcefile_id);
            break;
            
        default:
            header("Content-type: image/jpg");
            imagejpeg ($sourcefile_id);
    }           
  
    imagedestroy($sourcefile_id);
    imagedestroy($watermarkfile_id);
    
}